CheckFree Corp.'s chief financial officer declared Wednesday that despite the ongoing migration of four of its largest customers away from its electronic bill-payment platform, the company had completed its last losing quarter.
"We do anticipate remaining profitable going forward," David Mangum said in a telephone interview.
CheckFree reported a loss of $6.7 million, or 7 cents a share, for its 2004 fiscal first quarter, which ended Sept. 30. But Mr. Mangum is projecting a profit of 1 cent to 4 cents per share for the current quarter and a modest profit or break-even for the full year.
Revenue for the quarter rose 9% year over year, to $141.3 million, and Mr. Mangum said it should grow to $143 million to $148 million in the current quarter. The Norcross, Ga., company processed 126.7 million electronic bill payments in the period, up 5% from the last quarter of fiscal 2003.
Chairman and chief executive officer Pete Kight said in the Oct. 14 earnings statement, "We experienced consistent performance across all business units this quarter."
Four major banking companies - Bank One Corp., Wells Fargo & Co., Wachovia Corp., and J.P. Morgan Chase & Co. - "are removing transactions from our platform in order to process them in-house," Mr. Mangum said, referring to bill-pay services.
He said the losses that those companies' decisions will cause will be partly offset by the addition of a large banking customer that went live this quarter (he would not name the client). And the vendor has retained its biggest customer, Bank of America Corp.
Mr. Mangum said CheckFree is attracting new clients from the smaller end of the banking market, where online bill-payment is growing.
"I think we are seeing an awful lot of progress in regional and community banks" and credit unions, he said.
"Considering they lost some of their major customers, 5% growth is very healthy," said Avivah Litan, a vice president with the market research firm Gartner Inc. in Stamford, Conn. The fact that processing volume is rising "is a pretty good sign" for a company that tends to get 80% of that volume from a handful of its biggest clients, she said.
Mr. Mangum said his company's e-bill presentment service is growing sharply. It delivered 14.7 million e-bills in the three months that ended Sept. 30, up 27% from the prior quarter and more than triple the volume of the year-earlier period.
The CFO said he expects 25% to 40% growth in delivery for every quarter for the next year, though he conceded that such a pace would be unsustainable in the long run.
CheckFree sees e-bills "as critical for growing the bill-pay application in the American consumer market," Mr. Mangum said.
E-bills are so important to it that it is offering its largest customers extra incentive to use the service, according to Ms. Litan: It is giving major banks a rebate for every transaction that starts as a CheckFree e-bill and is paid through the CheckFree processing network. "CheckFree is basically paying" these banks, she said, "so they will be very inclined to promote bill presentment."
Ms. Litan said CheckFree customers have told her they are pleased with the service but have also complained about the monthly fees. This rebate will be attractive to them because it could lower their fees significantly. It is not being offered to smaller banks because they generate much lower transaction volumes, she said.
Despite losing some major customers and coming under pricing pressure in the past year, Ms. Litan said, the company is clearly the leader in electronic bill processing.
"I think CheckFree is emerging as a survivor," she said.
CheckFree's stock was upgraded Wednesday from "market perform" to "market outperform" by JMP Securities LLC, which cited improved visibility and sales momentum. That reversed JMP's July downgrade.
